Virgin's Plans to Fly to Australia Via H.K. Mired in Politics
Bloomberg
Wed, 12 Feb 2003, 6:51am EST
Virgin's Plans to Fly to Australia Via H.K. Mired in Politics
By Sonia Tsang
Hong Kong, Feb. 12 (Bloomberg) -- Plans by Richard Branson's Virgin Atlantic Airways to link flights between the U.K. and Australia with a stop in Hong Kong may fall victim to political squabbling in Belgium.
The U.K.'s second-largest carrier needs so-called fifth freedom rights to operate the route, now flown mainly by Qantas Airways Ltd. and Cathay Pacific Airways Ltd. Analysts say that won't be easy because of the increasing power wielded by the European Commission, based in Brussels, over member countries' aviation treaties.
"There's the uncertainty about the U.K.'s ability to designate just one U.K. carrier to get those rights,'' said Peter Harbison, managing director of Centre for Asia-Pacific Aviation, a Sydney-based aviation consultancy. "Progressively, the E.U. will take control of all international trade issues.''
Virgin Atlantic wants to fly from Hong Kong, the busiest airport in Asia outside Japan, to Australia because of the city's status as a regional aviation hub. About 1 million people flew between Hong Kong and the U.K. and 1.18 million people between Hong Kong and Australia in the year ended March 31, 2002, according to Hong Kong's Civil Aviation Department.
Europe's highest court, the European Court of Justice, in November said parts of "open skies'' agreements between the U.S. and eight countries violate EU free-trade laws because they favor national carriers in each country.
European Transport Commissioner Loyola de Palacio at the time called on Europe's national governments to give the European Commission the power to negotiate aviation agreements between the EU and other countries so that carriers would be recognized as European rather than national.
Making Requests
Branson said in November Virgin Atlantic had held preliminary talks with Hong Kong to operate the route. The carrier will persist with its request, Mackenzie Grant, the airline's regional general manager for Asia Pacific, said in an interview.
"We have no rights to pick up passengers from Hong Kong to go to Australia,'' said Grant. "We need that to complete the circle.''
The carrier requires the U.K. to negotiate on its behalf with Hong Kong for fifth freedom rights, or the right to carry passengers to one country and then continue to another country.
Hong Kong though is unlikely to reach an agreement with the U.K. unless it receives similar rights in return, analysts said.
"I don't think that (Hong Kong) will just give it to Virgin without anything in return,'' said Philip Wickham, an analyst with ING. "Hong Kong is asking for the same fifth freedom rights out of London and the U.K. is very restrictive on that.''
Competing on Routes
An alternative route from London to Australia would be via Singapore. The airline may be reluctant to fly that route because it would be extra competition for Singapore Airlines Ltd., which owns 49 percent of the U.K. carrier.
"Since Singapore Airlines is already flying this route, Virgin probably doesn't want to compete with one of its shareholders,'' said Eckes. "Singapore Airlines can't fly Australia-Hong Kong-U.K. They both would benefit.''
Flying via Hong Kong would create more competition for Sydney- based Qantas and Hong Kong's largest carrier Cathay Pacific, which dominate the Hong Kong-Australia routes.
The current bilateral air services agreement doesn't mean Cathay Pacific and Qantas have a protected duopoly because it also allows for other airlines to operate on the route, said Kevin Bubel, a Cathay spokesman. Ansett Holdings Ltd. also flew to Hong Kong from Australia until it collapsed in 2001, he said.
Considering Flights
Cathay has 35 services a week between Australia and Hong Kong, Qantas has 60 and Qantas's all-economy class Australian Airlines unit three, according to the current schedule on Australia's Department of Transport and Regional Services Web site.
Australian Airlines, which started flying in October, operates a Cairns-Hong Kong service. Rival Virgin Blue, based in Brisbane, has said it's also considering flights to Hong Kong.
In the case that Virgin Atlantic is granted permission to fly to Australia, it may work with Virgin Blue.
"If Virgin Atlantic is successful in getting into Australia, maybe we'll cooperate,'' Grant said. "Right now, our routes don't connect. What we share in common is the Virgin brand name.''
Branson owns 51 percent of Virgin Atlantic. The U.K. billionaire also owns 50 percent of Virgin Blue Airlines Pty, Australia's No. 2 airline.
Hong Kong and the U.S. reached a civil aviation agreement in October, giving airlines such as Cathay Pacific and AMR Corp.'s American Airlines greater access to each other's skies.
"We remain hopeful that in the present environment where liberalization of air services is seen as a positive development which will bring increased traffic to Hong Kong, we can win these rights at least within the next year or so,'' said Virgin Atlantic's Grant.